Wednesday, November 28. 2012

Very interesting analysis of the fundamental problem of building mobile consumer service businesses from Vibhu Norby, who has started up two mobile consumer service busineses. In essence he recites the impact that has been there since we first looked at mobile app functionality 5 years ago, ie small screen, small phone brain, closed walls and low returns to creators make for "high friction" service experience - here are the key stats from their first startup:

- Out of 300,000+ downloads and 250,000 unique website visitors, 200,000 people have signed up. So right away, chop off 60% of your audience whom are just window-shopping. As an aside, I have heard privately from an app maker with a 100m+ downloads that 50% of people don’t even open their app after downloading.

- We used to have a screen where users could input their phone numbers and emails to help other users find them better. Out of 200,000, chop off 25% who don’t have the patience for that or are scared that we will sell their phone number.... Another 25% don’t want to sign-in to a social network, don’t see the skip button, or get bored by this time.

- So that takes our original 550,000 eyeballs + people to 100,000 users. Now that the user is in our app and has an account, we want them to create a group and add their friends or family to the group. 25% of users won’t create a group and another 25% won’t add anybody to the group they created.

Result is at best, they retained about 5% of users through the entire onboarding process. Attempts to fix it raised it only nominally. If you try and ratchet up the total number of downloads, and that costs money - paying Google’s $1 CPC for people to enter your funnel, you’re really paying $20 per user and you will never recoup that cost. Service redesigns are too slow and expensive, and in a non-uniform set of separate walled systems (as opposed to the 'Net/Web) there is little of the systemic innovation that removes friction, so even if the Ad gets through the user has "already calculated in their mind how long it takes to go to the app store, find your app, download it, enter their password, open the app, and go through onboarding, and because it will take so long they simply won’t do it"

His conclusion:

In conclusion, I want to say that I don’t think mobile is going to stop growing. We are not going web-first because people use the web more than mobile. I use my phone more than anything else. I just don’t think that an entrepreneur who wants a real shot at success should start their business there. The Android and iOS platform set us up to fail by attracting us with the veneer of users, but in reality you are going to fight harder for them than is worthwhile to your business.

May I repeat what I wrote in 2007 on this subject, in our first research project on the Mobile Internet industry:

The story emerging is essentially that:

(i) There is limited collaboration across the value chain (content standards, distribution standards, handset standards etc) which makes the "friction" in the supply chain high compared to alternative (IP based) plays.

(ii) This means that the user audience finds mobile multimedia hard to use, they tend to try it out and then (apart from a small subset) by and large give up on it.

(iii) In addition, the economics of "pay as you go" drives people to minimise service / content usage - and there is still a lot of fear of "sticker shock" from big data transfer charges for content usage. Even though "as much as you can eat" deals are emerging there is still a strong

(iv) This small audience means that the economics of new content and service creation are less enticing than they should be. Exacerbating this is the small share of these small revenues that the upstream players typically get in most schemes.

Doing a quick 5 year review here, (i) the causes of friction are by and large still true (albeit with different players and for slightly different motivations), (ii) absolutely still applies, see above article (iii) "Pay as you go" and "sticker shock" pricing has largely disappeared as a problem, but (iv) the small audience for any one application means the economics of new content and service creation are still not attractive so apps are small and simple (by service creation I don't mean the initial app, I mean the development of that app into a useful value added service) - there are very few mobile application successes that are not "Web first" services.

Plus ca Change. Or better, the more things change, the more they stay the same. There has been change - better devices, better pricing, fewer annoying ringtones, a huge App development ecosystem - but systemically all that has changed in Planet Mobile is the 2007 mobile operators end to end control of the value chain has shifted to Apple and the "Android mishmash", but the open web environment that drove all the Web service innovation still has not emerged, and the rewards have still not moved to the service creators in any sustainable way - "sell a billion $0.99 games with 30% taken off the top by Apple/Google and you now have the equivalent revenue of a Call Of Duty opening weekend" as the author puts it.

So, lets make a date for 2017 and see if anything has changed.

(Vibhu has also done a very good analysis of the issues around Ad supported consumer Web businesses, but that is the subject of another post)

Not all ad businesses need low income/educated ppl to survive. Most are doing everything they can to get ad-dollars from FMCGs, & FMCGs depend on people with disposable income to spend on brands, rather than own-brand products. So he's wrong, & offensive

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